Economics

Brazilian GDP growth accelerates ahead of expectations

Quickview: Brazilian GDP growth accelerates to 1.4% in Q3 amid a pick-up in investment.

1 December 2017

Craig Botham

Craig Botham

Emerging Markets Economist

Brazilian economic activity accelerated in the third quarter, with yearly growth stronger than expected at 1.4%, from 0.4% previously.

Upward revisions to the second quarter data mean Brazil is on track to beat consensus expectations for 2017 as a whole, and we are encouraged to see a strong pick-up in investment.

Acceleration in growth led by investment

A breakdown of the data on an expenditure basis shows that the acceleration was led by a recovery in investment. On the quarter investment expanded 1.6%, such that the yearly growth rate is now only just negative, at -0.5%. Given a 6.7% annual contraction in the second quarter, this is a huge improvement.

Consumption was also strong, growing 2.2% year-on-year, up from 0.6% previously. One slight downside to this pick-up in consumption is the increase in imports. This is likely to weigh on the current account balance and, over time, could threaten the currency.

A sector breakdown shows a fairly broad-based recovery. Activity did slow in agriculture and mining, but picked up in most other sectors. Manufacturing, construction, retail, and real estate put in strong performances compared to the previous quarter.

Political uncertainty to increase ahead of elections

Overall this is an encouraging set of data, particularly the recovery in investment.

If we have any concerns, they would be that the reliance on consumption for growth is not desirable given the Brazilian consumer’s indebtedness, and the likely impact on the current account. Brazil needs to avoid any fresh build-up of external vulnerabilities.

We also see a risk to investment growth as political uncertainty builds ahead of next year’s elections. The prospect of economic nationalism, or populism, could weigh on the nascent recovery in investment.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.